Royal Bank of Scotland stunned the City last night with a shock profits warning after a string of scandal-related financial charges put the taxpayer-owned bank on course for an annual loss of as much as £8 billion.

The bank scrapped bonus payouts for its entire top executive team after being forced to set aside more than £3 billion to cover alleged misdemeanours from mis-sold home loans and hedging products to payment protection insurance.

RBS — 82 per cent-owned by the taxpayer — has warned shareholders that setting up an internal “bad bank” for its toxic securities will mean it faces an impairment